[Federal Register Volume 64, Number 208 (Thursday, October 28, 1999)]
[Notices]
[Pages 58108-58111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28197]


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SECURITIES AND EXCHANGE COMMISSION

[Rel No. IC-24106; File No: 812-11514]


JNL Variable Fun LLC; Notice of Application

October 21, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under section (c) of the 
Investment Company Act of 1940 (``1940 Act'' or ``Act'').

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SUMMARY OF APPLICATION: Applicant seeks an order under Section 6(c) of 
the 1940 Act exempting Applicant and its series and any other open-end 
investment company or series thereof advised or managed by Jackson 
National Life Insurance Company (``JNL''), Jackson National Financial 
Services, LLC, or their affiliates, or any entities controlled by or 
under common control with JNL, and that follows an investment strategy 
that is the same as the JNL/First Trust Dow Target 5 Series (``DJIA 5 
Series''), the NJL/First Trust Dow Target 10 Series (``DJIA 10 
Series''), the JNL/First Trust Global Target 15 Series (``Target 15 
Series''), or the JNL/First Trust S&P Target 10 Series (``S&P Target 10 
Series'') (``Future Companies''), from the provisions of section 
12(d)(3) of the 1940 Act to the extent necessary to permit them to 
establish and maintain series which may invest up to 10.5% of their 
total assets (the DJIA 10 Series) or up to 20.5% of their total assets 
(the DJIA 5 Series) or up to 7\1/6\% of their total assets (the Target 
15 Series) or up to 10.5% of their total assets (the S&P Target 10 
Series), in securities of issuers that derive more than (15%) of their 
gross revenues from securities related activities.

APPLICANT: JNL Variable Fund LLC.

FILING DATE: The application was filed on February 12, 1999, and 
amended on April 28, 1999, and September 3, 1999.

HEARING OR NOTIFICATION OF HEARINGS: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on the application by writing to the 
Secretary of the Commission and serving Applicant with a copy of the 
request personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on November 15, 1999, and must be accompanied 
by proof of service on the Applicant in the form of an affidavit or, 
for lawyer, a certificate of service. Hearing requests should state the 
nature of the interest, the reason for the request, and the issues 
contested. Persons may request notification of hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609; Applicant, c/o Amy D. Eisenbeis, Esq., Jackson National Life 
Insurance Company 5901 Executive Drive, Lancing, Michigan 48911-5389.

FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior 
Counsel, or Kevin M. Kirchoff, Branch Chief, Office of Insurance 
Products, Division of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch 450 Fifth Street, NW, Washington, D.C. 
20549-0102 [tel (202) 942-8090].

Applicant's Representations

    1. JNL is a stock life insurance company organized under the laws 
of the State of Michigan. JNL is licensed to transact life insurance 
and annuity business in the District of Columbia and all states except 
New York. JNL's ultimate parent is Prudential Corporation plc, a 
British financial services group.
    2. Applicant is a Delaware limited liability company registered 
with the Commission as an open-end investment company. Applicant's 12 
series, including the DJIA 5 Series, the DJIA 10 Series, the Target 15 
Series and the S&P Target 10 Series (the DJIA 5 Series and the DJIA 10 
Series, the ``DJIA Series'' together with the Target 15 Series and S&P 
Target 10 Series, ``Series''), serve as underlying investment vehicles 
for variable annuity contracts offered by JNL through Jackson National 
Separate Account I (``JNL Account I''), a registered unit investment 
trust.
    3. Jackson National Financial Services, LLC (the ``Manager''), a 
wholly owned subsidiary of JNL, serves as applicant's investment 
adviser and in such capacity has responsibility for the overall 
management of the investment strategies and policies of Applicant and 
its series. The Manager has retained First Trust Advisers L.P. (``Sub-
adviser'') as sub-adviser for each of Applicant's series.
    4. The DJIA 5 Series will invest approximately twenty percent (20%) 
of its total assets in the common stock of each of the five companies 
with the lowest per share stock price of the ten companies in the Dow 
Jones Industrial Average (the ``DJIA'') that have the highest dividend 
yield as of the close of

[[Page 58109]]

business on or about the last business day prior to the initial 
investment date and annually, on the anniversary of said initial 
investment date, thereafter (each a ``Stock Selection Date'').
    5. The DJIA 10 Series will invest approximately ten percent (10%) 
of its total assets in the common stock of each of the ten companies in 
the Dow Jones Industrial Average (``DJIA'') with the highest dividend 
yield as of each Stock Selection Date.
    6. The Target 15 Series will invest approximately six and two-
thirds percent (6\2/3\%) of its total assets in the common stock of 
each of fifteen companies which are components of the DJIA, the 
Financial Times Industrial Ordinary Share Index (``FT Index'') and the 
Hang Seng Index. Such companies will have the five lowest per share 
stock prices of the ten companies in each respective index which have 
the highest dividend yield in such respective index at the close of 
business on or about the last business day prior to each applicable 
Stock Selection Date.
    7. The S&P Target 10 Series will invest approximately ten percent 
(10%) of its total assets in the common stock of each of the ten 
companies with the greatest one year appreciation of the one hundred 
and twenty-five companies in the S&P 500 Index that have the lowest 
price to sales ratio as of the close of business on or about the last 
business day prior to each Stock Selection Date. Such one hundred and 
twenty-five companies will be selected from two hundred and fifty 
companies that have the largest market capitalization in the S&P 500 
Index as of the close of business on or about the last business day 
prior to each applicable Stock Selection Date.
    8. The DJIA is comprised of thirty stocks chosen by the editors of 
The Wall Street Journal. The DJIA is the property of the Dow Jones & 
Company, Inc., which is not affiliated with JNL, JNL Account I or 
Applicant and does not participate in any way in the creation of any 
Series or the selection of their stocks.
    9. The FT Index is comprised of thirty stocks chosen by the editors 
of The Financial Times as representative of the British industry and 
commerce. The FT Index is the property of The Financial Times and is 
not affiliated with JNL, JNL Account-1 or Applicant and does not 
participate in any way in the creation of any Series or the selection 
of their stocks.
    10. The Hang Seng Index consists of thirty-three of the three 
hundred fifty-eight stocks and represents approximately 70% of the 
total market capitalization of the stocks listed on the Hong Kong Stock 
Exchange. The Hang Seng Index is the property of HSI Services Limited 
and is not affiliated with JNL, JNL Account-1 or Applicant and does not 
participate in any way in the creation of any Series or the selection 
of their stocks.
    11. The S&P 500 Index consists of 500 stocks chosen for market 
size, liquidity and industry group representation. It is a market-value 
weighted index with each stock's weight in the index proportionate to 
its market value. the S&P 500 Index is the property of The McGraw-Hill 
Companies, Inc. which is not affiliated with JNL, JNL Account I or the 
Applicant and does not participate in any way in the creation of any 
Series or the selection of their stocks.
    12. The objective of each Series is to provide an above-average 
total return through a combination of dividend income and capital 
appreciation. On each Stock Selection Date, each Series will allocate 
or reallocate its investments so that its assets are invested, in 
substantially equal amounts, in the common stock of the companies 
meeting each Series respective investment criteria (as held in a 
Series, such common stock is referred to as the ``Common Shares''). A 
percentage relationship among the Common Shares held in each Series 
will be established for each Series as of the Stock Selection Date. 
When funds are deposited into or withdrawn from a Series during the 
year, Common Shares will be purchased or sold for said Series, as 
appropriate, to duplicate, as nearly as practicable, the percentage 
relationship of the number of Common Shares established on the 
immediately preceding Stock Selection Date for said Series. Applicant 
states that the percentage relationship among the number of Common 
Shares in each Series therefore should remain stable until the next 
Stock Selection Date.
    13. Section 817(h) of the Internal Revenue Code of 1986, as amended 
(``Code''), provides that in order for a variable contract which 
allocates funds to a Series to qualify as an annuity contract under the 
Code, the investments underlying the variable contracts must be 
adequately diversified in accordance with regulations issued by the 
United States Department of the Treasury (``Treasury''). To be 
adequately diversified, each Series must have (a) no more than 55% of 
the value of its total assets represented by any one investment; (b) no 
more than 70% of the value of its total assets represented by any two 
investments; (c) no more than 80% of the value of its total assets 
represented by any three investments; and (d) no more than 90% of the 
value of its total assets represented by any four investments (the 
``Section 817(h) diversification requirements'').
    14. The Series intend to comply with the Section 817(h) 
diversification requirements. The Manager has entered into an agreement 
with the Sub-adviser that requires the Series to be operated in 
compliance with the Treasury regulations including the Section 817(h) 
diversification requirements. Therefore, the Sub-adviser may depart 
from a Series' applicable investment strategy, if necessary, in order 
to meet the Section 817(h) diversification requirements.
    15. Applicant represents that, except in order to meet the Section 
817(h) diversification requirements, the Common Shares purchased for 
each Series will be chosen solely according to the formula described 
above, and will not be based on the research opinions or buy or sell 
recommendations of the Sub-adviser. During each year, the Sub-adviser 
will invest additional amounts received from JNL Account I in 
additional Common Shares or arrange sales of Common Shares to meet 
redemption or transfer requests, so that the proportion relationship 
among the number of shares of each stock in the Series established on 
the immediately preceding Stock Selection Date is maintained, to the 
extent practicable. The Sub-adviser has no discretion as to which 
Common Shares are purchased. However, the Sub-advisor will have limited 
discretion with respect to the short-term investment of any cash that 
may exist in a Series following: (a) the purchase or sale of the 
appropriate portion of Common Shares based on the formulas noted 
herein, to the extent that all of the cash can not be used to purchase 
such securities or more securities need to be sold than that necessary 
to meet redemption needs, due to round-lot purchase and sale 
requirements; or (b) a default by an issuer of Common Shares in the 
payment of its outstanding obligations, a decrease in the price of the 
security or other credit factors such that in the opinion of the Sub-
advisor the retention of the applicable Common Share would be 
detrimental to the applicable Series.
    16. Securities purchased for each of the Series may include 
securities of issuers in the DJIA, the FT Index, the Hang Seng Index or 
the S&P 500 Index that derived more than fifteen percent of their gross 
revenues in their most fiscal year from securities related activities.

Applicant's Legal Analysis

    1. Section 12(d)(3) of the 1940 Act, with limited exceptions, 
prohibits an investment company from acquiring any security issued by 
any person who is a

[[Page 58110]]

broker, dealer, underwriter or investment adviser. Rule 12d3-1 under 
the 1940 Act exempts purchases by an investment company of securities 
of an issuer (except its own investment adviser, promoter or principal 
underwriter or their affiliates) that derived more than fifteen percent 
of its gross revenues in its most recent fiscal year from securities 
related activities, provided that, among other things, immediately 
after such acquisition, the acquiring company has invested not more 
than five percent of the value of its total assets in securities of the 
issuer.
    2. Section 6(c) of the 1940 Act provides that the Commission may 
exempt any person, transaction or class of transactions from any 
provisions of the 1940 Act or any rule thereunder, if and to the extent 
that the exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    3. Applicant requests that the Commission exempt the Applicant from 
the provisions of Section 12(d)(3) in order to permit the Series to 
acquire securities of an issuer that derives more than 15% of its gross 
revenues from securities related activities, provided that; (a) those 
securities are included in the DJIA, the FT Index, the Hang Seng Index 
or the S&P 500 Index as of the applicable Stock Selection Date; (b) 
with respect to the DJIA 5 Series, the securities represent one of the 
five companies with the lowest per share stock price of the ten 
companies in the DJIA that have the highest dividend yield as of Stock 
Selection Date; (c) with respect to the DJIA 10 Series, the securities 
represent one of the ten companies with the lowest per share stock 
price of the ten companies in the DJIA that have the highest dividend 
yield as of each Stock Selection Date; (d) with respect to the Target 
15 Series, the securities represent the fifteen companies which reflect 
the five lowest per share stock prices of the ten companies in each of 
the DJIA, the FT Index and the Hang Seng Index and which have the 
highest dividend yield in such respective index as of each Stock 
Selection Date; (e) with respect to the S&P Target 10 Series, the 
securities represent the ten companies with the greatest one year price 
appreciation of the one hundred and twenty-five companies in the S&P 
500 Index that have the lowest price to sales ratio as of each Stock 
Selection Date. The one hundred and twenty-five companies will be 
selected from two hundred and fifty companies that have the largest 
market capitalization in the S&P Index as of each Stock Selection Date; 
and (f) as of the first business day after each Stock Selection Date, 
with respect to the DJIA 5 Series, the value of the Common Shares of 
each securities related issuer represents approximately 20%, but not 
more than 20.5% of the value of the DJIA 5 Series total assets, with 
respect to the DJIA 10 Series, the value of the Common Shares of each 
securities related issuer represents approximately 10%, but not more 
than 10.5% of the value of the DJIA 10 Series' total assets, with 
respect to the Target 15 Series, the value of the Common Shares of each 
securities related issuer represents approximately 6\2/3\%, but not 
more than 7 \1/16\% of the value of the Target 15 Series total assets, 
and with respect to the S&P Target 10 Series, the value of the Common 
Shares of each securities related issuer represents approximately 10%, 
but not more than 10.5% of the value of the S&P Target 10 Series total 
assets. The 20%, 5%, 10.5% and 7\1/16\% respective standards will be 
based on the prices of the Common Shares as of the first business day 
after the applicable Stock Selection Date.
    4. Applicant and each Series undertake to comply with all of the 
requirements of Rule 12d3-1, except the condition prohibiting an 
investment company from investing more than five percent of the value 
of its total assets in securities of a securities related issuer.
    5. Applicant asserts that Section 12(d)(3) was intended: (a) to 
prevent investment companies from exposing their assets to the 
entrepreneurial risk of securities related business; (b) to prevent 
potential conflicts of interest; (c) to eliminate certain reciprocal 
practices between investment companies and securities related 
businesses; and (d) to ensure that investment companies maintain 
adequate liquidity in their portfolios.
    6. A potential conflict could occur if an investment company 
purchased securities or other interests in a broker-dealer to reward 
that broker-dealer for selling fund shares, rather than solely on 
investment merit. Applicant maintains that this concern does not arise 
in this situation because the Sub-adviser does not have discretion in 
choosing the Common Shares or the amount purchased. The stock must 
first be included in the DJIA, the FT Index, the Hang Seng Index, or 
the S&P 500 Index, as applicable, (none of which are affiliated with 
the Applicant, the Manager or the Sub-adviser). In addition, the 
securities must also qualify based on applicable arithmetic formula for 
each Series, as of the applicable Stock Selection Date.
    7. Applicant states that prior Section 12(d)(3) relief has been 
granted to applicants which were unit investment trusts with no 
discretion to choose the portfolio securities or the amount purchased, 
but with discretion to sell portfolio securities to the extent 
necessary to meet redemptions. Additionally, relief has also been 
granted to an applicant which was a managed investment company issuing 
variable annuities which resulted in continuing new premiums that 
needed to be invested on a continual basis, and where such continuing 
investments were made based on the ratios of the number of shares 
established at the beginning of each year, using an investment strategy 
similar to that proposed by the Applicant, and not based on the 
advisers discretion.
    8. The Sub-adviser is permitted to deviate from the applicable 
formula for the respective Series where circumstances are such that the 
investment of the particular Series would fail to meet the Section 
817(h) diversification requirements and would thus cause the annuity 
contracts to fail to qualify as an annuity contract under the Code. 
Applicant maintains that, in such a situation, the Sub-adviser must be 
permitted to deviate from the investment strategy of the applicable 
Series, but only in order to meet the Section 817(h) diversification 
requirements and then only to the extent necessary to do so. 
Additionally, the Sub-adviser has limited discretion with respect to 
the short-term investment of any cash that may exist in a Series due to 
round-lot purchase and sale requirements and certain defaulted security 
situations. Applicant states that this limited discretion does not 
raise the concerns that Section 12(d)(3) is designated to prevent.
    9. Applicant submits that the liquidity of the Series' portfolios 
is not a concern because the shares of common stock selected are each 
included in the DJIA, FT Index, Hang Seng Index or S&P 500 Index and 
traded on the New York Stock Exchange, the American Stock Exchange, the 
London Stock Exchange, the Hong Kong Stock Exchange, or over-the-
counter markets and are among the most actively traded securities in 
their respective markets.
    10. Applicant also submits that the investment policies of the 
Series will not lead to reciprocal practices between the Applicant and 
issuers involved in securities related businesses since purchases by 
the Series will have no significant effect on these issuers. The common 
stocks of securities related issuers represented in the DJIA, the FT 
Index, the Hang Seng Index and the S&P

[[Page 58111]]

500 Index are widely held and have active markets and potential 
purchases by a Series would represent an insignificant amount of the 
outstanding common stock and the trading volume of any of those 
issuers.
    11. Applicant states that a conflict of interest could occur if 
broker-dealers are influenced to recommend certain investment company 
funds which invest in the stock of the broker-dealer or any of its 
affiliates. However, because of the large market capitalization of the 
DJIA, the FT Index, the Hang Seng Index and the S&P 500 Index issuers, 
and the small portion of these issuers common stock and trading volume 
that would be purchased by the Series, Applicant finds that it is 
extremely unlikely that any advice offered by a broker-dealer to a 
customer as to which investment company to invest in would be 
influenced by the possibility that JNL Account I or one of the Series 
would be invested in the broker-dealer or parent thereto.
    12. Applicant states that another potential conflict of interest 
could occur if an investment company directed brokerage to an 
affiliated broker-dealer in which the company has invested to enhance 
the broker-dealers profitability or to assist it during financial 
difficulty, even though that broker-dealer may not offer the best price 
and execution. To preclude this type of conflict, Applicant agrees, as 
a condition of the application, that no company held in any Series 
portfolio, or any affiliate of such company, will act as broker for any 
Series in the purchase or sale of any security for their portfolios.
    13. Finally, Applicant represents that any Future Companies will 
comply with the terms and conditions for the Series. Applicant submits 
that without class relief, exemptive relief for any Future Companies 
would have to be requested and obtained separately and would present no 
issues under the 1940 Act not already addressed in the application. 
Applicant states that if it were to repeatedly seek exemptive relief 
with respect to the same issues, investors would not receive additional 
protection or benefit, and investors and the Applicant could be 
disadvantaged by increased costs from preparing such additional 
requests for relief. Applicant asserts that the requested class relief 
is appropriate in the public interest because the relief will promote 
competitiveness in the variable annuity market by eliminating the need 
to file redundant exemptive applications, thereby reducing 
administrative expenses and maximizing efficient use of resources.

Applicant's Conditions

    The Applicant agrees that the order granting the requested relief 
shall be subject to the following conditions:
    1. As to the DJIA Series, the Common Shares are of issuers included 
in the DJIA as of the applicable Stock Selection Date;
    2. As to the DJIA 10 Series, the Common Shares represent one of the 
ten companies in the DJIA that has the highest-dividend yield as of the 
applicable Stock Selection Date;
    3. With respect to the DJLA 5 Series, the Common Shares represent 
one of the five companies with the lowest dollar per share price of the 
ten companies in the DJIA that has the highest dividend yield as of the 
applicable Stock Selection Date;
    4. With respect to the DJIA 10 Series, on the first business day 
after each Stock Selection Date, the value of the Common Shares of each 
securities related issuer represents approximately ten percent (10%) of 
the value of the DJIA 10 Series total assets, but in no event more than 
ten and one-half percent (10.5%) of the value of the DJIA 10 Series 
total assets;
    5. With respect to the DJIA 5 Series, on the first business day 
after each Stock Selection Date, the value of the Common Shares of each 
securities related issuer represents approximately twenty percent (20%) 
of the value of the DJIA 5 Series total assets, but in no event more 
than twenty and one-half percent (20.5%) of the value of the DJIA 5 
Series total assets;
    6. As to the Target 15 Series, the Target Stocks are of issuers 
included in the DJIA, FT Index and the Hang Seng Index as of the 
applicable Stock Selection Date;
    7. As to the Target 15 Series, the Target Stocks represent one of 
the ten companies in each of the DJIA, FT Index and Hang Seng Index 
that has the highest dividend yield as of the applicable Stock 
Selection Date;
    8. With respect to the Target 15 Series, the Target Stocks 
represent one of the five companies with the lowest per share price of 
the ten companies in each of the DJIA, FT Index or the Hang Seng Index 
that has the highest dividend yield as of the applicable Stock 
Selection Date;
    9. With respect to the Target 15 Series, on the first business day 
after each Stock Selection Date, the value of the Target Stocks of each 
securities related issuer represents approximately six and two-thirds 
percent (6\2/3\%) of the value of the Target 15 Series total assets, 
but in no event more than seven and one-sixth percent (7\1/6\%) of the 
value of the Target 15 Series total assets;
    10. As to the S&P Target 10 Series, the S&P Target Stocks are of 
issuers included in the S&P 500 Index as of the applicable Stock 
Selection Date;
    11. As to the S&P Target 10 Series, the S&P Target Stocks represent 
one of the ten companies with the greatest one year price appreciation 
of the one hundred and twenty-five companies in the S&P 500 Index that 
have the lowest price to sales ratio as of the applicable Stock 
Selection Date. The one hundred and twenty-five companies will be 
selected from two hundred and fifty companies that have the largest 
market capitalization in the S&P 500 Index as of the applicable Stock 
Selection Date;
    12. With respect to the S&P Target 10 Series, on the first business 
day after each Stock Selection Date, the value of the S&P Target Stocks 
of each securities issuer represents approximately ten percent (10%) of 
the value of the S&P Target 10 Series total assets, but in no event 
more than ten and one-half percent (10.5%) of the value of the S&P 
Target 10 Series total assets; and
    13. As to any Series, no issuer whose securities are held by any 
Series, nor any affiliate thereof, will act as broker for such Series 
in the purchase or sale of any security for such Series.

Conclusion

    For the reasons summarized above, Applicant asserts that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28197 Filed 10-27-99; 8:45 am]
BILLING CODE 8010-01-M